Dow does not accept responsibility for victims of the pesticide plant in Bhopal but rejects there is a contradiction between its approach to water sustainability and defence of its product lines. Photograph: Sanjeev Gupta/EPA

The Dow Chemical Company, one of the largest chemical manufacturers in the world, wants you to know that it 'gets' concerns about sustainable water management.

At the Rio+20 summit, the firm signed a communique calling for greater collaboration between private and public sectors to address water scarcity, and has sponsored a number of initiatives in recent years from water forums to fun runs and concerts to boost public awareness.

"Roughly 2.5% of the available fresh water on the planet is all we have to work with: for agricultural, human needs as well as industry," said Snehal Desai, global business director of Dow's water and process solutions arm. "This issue is not going to go away."

Pointing to the planet's rising population and rapid urbanisation as evidence of intensifying pressure on fresh water supplies, Desai said businesses are increasingly taking a second look at how the world manages this finite resource. "Finding alternative sources is clearly a critical issue".

One solution is research and development, and Dow has been funnelling millions of dollars into desalination and water recycling technologies. Another, Desai said, is pursuing innovative collaborations. One partnership the company trumpets is taking place in the city of Terneuzen, in south-western Netherlands.

At first glance, it's hard to imagine that Terneuzen has a water problem. The population of this seaport is just 55,000 - so small that it would hardly qualify for city status in many countries. The river Scheldt lies to the north, a canal to the west. Yet Terneuzen is so desperately short of fresh water that it has to import supplies from 120km away, from France.

Part of the problem is that Terneuzen sits at sea level and its groundwater aquifers are contaminated by salty waters from the North Sea. But local industry is also a major drain on the city's water supplies. Dow's facility, its largest outside the United States, needs 22m cubic metres of water a year to operate. To put that into context, the population of the entire local region of Zeeuws-Vlaanderen, 100,000, requires just four million cubic metres.

To alleviate local water stress, Dow teamed up with the city's water board and utility company Evides to recycle wastewater coming from Terneuzen. Today the facility accepts around 30,000 cubic metres of waste water each day, which is used to generate steam and feed its plants. As well as reducing water stress, Dow claims energy use has consequently reduced by 95% - the equivalent of reducing carbon dioxide emissions by 60,000 tons annually.

By 2020, Dow hopes to completely eliminate its reliance on remotely sourced freshwater and instead use water from a regional water recycling program.

Desai said the project, which earned an ICIS award for corporate social responsibility in 2008, is motivated both by a sense of moral obligation to the local community as well as a clear economic driver. "If you look at other parts of the world, Terneuzen's not that different. Around the world municipal infrastructure is woefully underinvested," he said. "So being able to find a nice fit between an industrial company and its ability to deploy some of its talent and know-how, as well as its resources, to help solve that problem in collaboration with the public sector, is a trend...that we see on the rise."

Yet for all the project's merits, Dow's critics claim that it fails to wash away the sins of its core business: chemicals manufacturing. According to Anna Lappé, food sustainability author and co-founder of the Small Planet Institute, the Terneuzen project risks distracting public attention from the alleged harmful effects of its portfolio of agricultural chemicals, which filter into groundwater supplies and, arguably, add to water stress.

"While the company touts its small-scale sustainability efforts," said Lappé, "its business model and profitability rest on the continued manufacture and promotion of the world's most toxic chemicals - chemicals that are the source of the worst water contamination globally and which use large amounts of energy to produce and distribute."

Lappé highlights products such as insecticide Dursban, as well as the company's refusal to compensate victims of the Bhopal disaster. In 2003, Dow agreed to pay $2m (£1.3m) to New York state after being accused of making misleading safety claims over Dursban. But it does not accept responsibility for the victims of the pesticide plant in Bhopal, then owned by Union Carbide, a company which it subsequently took over, despite claims that water supplies near the plant (which Dow never owned) are still highly toxic.

While Dow claims to have reduced global dioxin emissions to water and air by over 80% since 1995, Lappé says the firm, which chalks up $55bn (£36m) in annual sales, has also fought claims by communities living on its own doorstep, near its Michigan headquarters, who claim they have been harmed by dioxins entering the ecosystem.

"One of the most common plays in the public relations playbook of chemical companies is to do two things: on the one hand fight tooth and nail any community that is trying to get them to admit to pollution or get them to clean it up, and on the other hand to do relatively inexpensive public relations stunts, like running a 5k run for clean water or supporting, like Dow did, a global conversation about water sustainability."

"Sure, all companies should be working to reduce energy use and reduce water contamination, that goes without saying. But these efforts should never be used to distract policy makers, regulators, and consumers from the greater, harmful impact a company like Dow has. Nor should these positive efforts inoculate Dow from criticism."

Dow rejects that there is a contradiction between its approach to water sustainability in Terneuzen and the promotion and defence of its product lines, adding that accusations against it have been thoroughly investigated. "To be clear, Dow operates with the highest degree of ethics and meets all of the regulatory requirements that are put upon us, but also is complying to a standard that's quite high from a global perspective," said Desai.

"You would be very hard pressed to find a company doing as much as Dow to ensure that we are operating in a safe and responsible manner in the communities in which we operate," he added. "There will be always be critics, but let's look to the facts of what we are doing."